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Friday, December 12, 2008

Economics & A Christmas Carol

Charles Dickens’s Holiday Classic as a Study in Choice and Incentives

There are a number of holiday traditions at our house. Some of them showed up when I married and acquired a family, but some are older. One of the longer personal traditions is watching A Christmas Carol. My favorite version features George C. Scott as Scrooge and was originally aired in early 1980s, sponsored by IBM. (I also admit a certain fondness for the versions that featured Mr. Magoo, the Muppets and Patrick Stewart, but for vastly different reasons.) I have always been drawn to story of Scrooge’s redemption; and Scott’s excitement and happiness when he awakes on Christmas morning is impressive given his age at the time and his penchant for gruff characters.

However, the current state of the economy has me thinking about different aspects of many things. And I suspect it was the reason I began thinking about the economic aspects of my favorite holiday video. Given the extensive reach of the slowdown, many people seem to be economizing (although the data on “Black Friday” was better than expected – up 3% over last year). This may foreshadow a more inward focus for many us as we approach the holiday season. However, Scrooge’s single-minded attention to the financial and commercial success is too easy a target for a post on economics and A Christmas Carol. To focus exclusively on that as the economics in the story is to miss a larger opportunity. As I see it, it is the appreciation for values other than monetary as incentive that makes the story a classic. Nevertheless, using economic thinking helps us understand the choices that Scrooge and other characters make and the incentives that motivate their choices. And those insights can help us understand ourselves. And that, in my mind, is one of the hallmarks of good literature.

As hinted above, Scrooge’s incentives are clearly seen early on. He is concerned with material things. Garments, the cost of coal, and the price of corn are his concern. He begrudges every outlay and looks for ways to make money at every turn. The fact that others are adversely affected is not part of his view, except to the extent that he pays taxes to support others – something in his view that should exempt him from further concern or involvement. He has a superficial incentive – to make more – but that is the extent of his interest.

But Scrooge is not the way he is because of a lack of opportunity; nor do other characters lack incentives that may engage him. His nephew, Fred, invites him to dine on Christmas, but Scrooge decries the holiday as commercial and a waste of time and money. He even measures Fred’s wife, whom he’s never met, in terms of money – a girl who “brought very little to the marriage.” But when challenged by his uncle, Fred speaks of Christmas as a good and charitable time that makes him better and makes him feel better.

Bob Cratchit also speaks to feelings as a motivator when he asks for the day off, while Scrooge talks of having his pocket picked – a way of decrying a paid holiday. The views are different, reflecting different motivations.

Scrooge also has interactions on a number of levels at the exchange. He increases the asking price from a previous corn deal as compensation for the delay in making a deal; and he refuses to contribute to a charity to provide food for the poor. His defense is that he pays taxes for prisons and workhouses to provide for the poor. These insights into Scrooge’s incentive system are easy and almost cartoonish.

To dig deeper, we need to start with Marley’s visit to Scrooge’s bedchamber. Marley explains that his penance is due to his money-oriented incentives for life. The consequence of his material short-sightedness is that he is now required to make up for a lifetime of avarice. He has no choice and incentives no longer matter in his state. But he does offer hope to his friend, Ebenezer. If Scrooge can but realize that mankind is his business, he may avoid the fate of an endlessly-wandering soul. There is incentive – but with it a true empathy for others needs to develop. And we find out this is not an impossible task.

With the ghost of Christmas past, we see that young Scrooge once had a different incentive as a youth. His desire for Belle, to be worthy of her and to deserve her, helped direct his early career. But his success in the world of commerce shifts his attention – from Belle to bounty. This is in contrast with the life of his master, Old Fezziwig, who taught him the ins and outs of commerce, and sought to teach him more. But he was unable to impress a more important lesson on the young apprentice – the lesson of what constitutes a full life. For Fezziwig, family and friends sharing food, drink, dance and good times constituted real wealth. And while Scrooge seems to appreciate the lesson in retrospect, his behavior indicates the lesson was not truly learned. He started out with an emotional goal, but his drive make a secure life for Belle would eventually replace her.

The next step in Scrooge’s reclamation is at the hands of the Ghost of Christmas Present. And in Scott’s portrayal, we begin to see some indication that the miser’s values may be shifting. As I recall from reading Dickens, there are some hints that Scrooge may be rethinking his views, but they are not strong and clear cut.

With the visit of the second Ghost of Christmas, we are invited to see three Christmas celebrations of the time. We see Christmas at the Cratchit home; Christmas with Scrooge’s nephew, Fred; and the Christmas of a destitute family somewhere in England. The common theme for each of these is the importance of family. The incentive is to keep family and friends close; and to celebrate – or in the case of the final family, to value – being together. Initially Scrooge, as portrayed by Scott, is impressed by the sheer volume of market transactions on Christmas morning as he and the spirit make their way to the first visit. As he spends time at each visitation, he seems to begin to grasp the importance of family, friends, and goodwill to others. He sees his dead sister in his nephew. He voices concern about Tiny Tim. And he appears shocked that people are destitute rather than in the institutions he is taxed to support. One senses he is beginning to realize there is something else, something more than money and finance. Slowly his incentive is shifting. He sees the value in charity and in sharing good fortune.

The final spirit provides some negative incentive for Scrooge. He is shown that if he continues his materialistic view, he will die alone. We see that he loses his things, and his business contacts will only attend his funeral if they will be fed – an ironic and materialistic view - although Scrooge does not fully accept that the events are about his passing. He is also shown that others will die. But unlike Scrooge, Tiny Tim’s passing is mourned and his life valued. Essentially the second and third spirits have played “good cop/bad cop” with Ebenezer. He has been shown the some positive consequences of his current decisions, and some negative consequences. This provides the final change in his incentives. He asks the third spirit whether a change in behavior will change the future. And while he receives no definite answer, his actions upon awakening Christmas morning indicate that he is a changed man. He has different priorities owing to a change in incentives. He realizes he wants to care and be cared about; and he does not want to pass on with the only incentive to others being what they can get out of the dead man – whether it be his things or a “free lunch.” And these incentives alter his behavior - the choices he makes about using his resources.

In retrospect, there are a couple points that I find relevant. The first is our incentives say much about us, and in turn about how we view and treat others. When our focus is just on the material, we run the risk of emulating the old Scrooge. And given the current state of the economy, that view may actually be detrimental. This brings me my second point. We can care about others and in doing so we ultimately enrich our own lives. That is emulating the new Scrooge. We need to consider the incentives that should be on our minds during this season and this time. This is no call to be foolish about our resources – it would seem we’ve done that. But we need to remember others. For it is through others that we gain the most valuable part of our lives – our humanity.

Everyone can benefit from our resources. Let us try to use our resources to benefit everyone. The sooner we participate in the economy, the sooner the economy will allow others to participate. Whether it’s international, national, or local; whether it’s the Powell Center for Economic Literacy (a 501(c)3 charitable organization) or your local food bank; we all need to try to help others.

Blog Archive Note

All entries prior to August 15, 2007 appeared on the economic education blog of the Federal Reserve Bank of Chicago. Entries between August 15, 2007 and July 31, 2009 were under the auspices of the Powell Center for Economic Literacy in Richmond, VA.